EIA Oil Supply Data Headlines: Crude Stocks Down, Gasoline Up

The U.S. Energy Department's inventory release showed that crude stocks recorded a weekly decrease that was much smaller than anticipated. The second straight fall in domestic oil stocks was accompanied by a decrease in distillate inventories. Additionally, the agency said that gasoline stockpiles increased and oil supplies at the Cushing, OK, delivery hub rose too.

Analyzing the Latest EIA Report

Below we review the EIA's Weekly Petroleum Status Report for the week ending Oct 16.

Crude Oil: The federal government’s EIA report revealed that crude inventories fell by 1 million barrels compared to expectations of a 1.9 million-barrel decrease. A sharp drop in domestic production — related to the lingering effects of Hurricane Delta-led shut-ins in the Gulf of Mexico facilities — primarily accounted for the stockpile draw with the world’s biggest oil consumer even as refinery activity trended down. This puts total domestic stocks at 488.1 million barrels —12.7% over the year-ago figure and 10% higher than the five-year average.

But the latest report also showed that supplies at the Cushing terminal (the key delivery hub for U.S. crude futures traded on the New York Mercantile Exchange) increased 975,000 barrels to 59.4 million barrels — the most since early May.

The crude supply cover was up from 35.9 days in the previous week to 36.1 days. In the year-ago period, the supply cover was 27.5 days.

Let’s turn to the products now.

Gasoline: Gasoline supplies increased for just the second time in 11 weeks. The 1.9-million-barrel climb is attributable to lower demand. Analysts had forecast a decline of 1.6 million barrels. At 227 million barrels, the current stock of the most widely used petroleum product is around 1.7% higher than the year-earlier level and 2% above five-year average range.

Distillate: Distillate fuel supplies (including diesel and heating oil) decreased for the fifth week in a row. The 3.8 million-barrel draw reflected a slight fall in production and imports. Meanwhile, the market looked for a supply decline of 3 million barrels. Current inventories — at 160.7 million barrels — are 33% higher than the year-ago level and 19% higher than the five-year average.

Refinery Rates: Refinery utilization decreased 2.2% from the prior week to 72.9%.

Conclusion

While oil prices have come a long way to $40 since the depths of minus $38 a barrel in April, lingering signs of demand weakness are still evident. As long as the coronavirus outbreak continues unabated (as is now the case across Europe which is fighting the second wave), there will be pressure on the demand side of the equation. In particular, there are apprehensions about the recovery in refining throughput.

Agreed, gasoline consumption has improved from their pandemic lows but they remain weak. Even refinery utilization in the United States remains far below the usual capacity usage at this time of the year.

As it is, during the August-October period, the U.S. refining network in the Gulf Coast experiences regular drops in utilization due to the impact of hurricane shutdowns. Moreover, with the onset of the refinery maintenance season, traders expect the glut to worsen.

As proof of the bearish environment, downstream operators, including PBF Energy PBF, Valero Energy VLO and Phillips 66 PSX, have drastically reduced processing capacity to cope with demand erosion caused by the efforts to stem the spread of coronavirus. Demand has still not picked up to a level where the operators can think of restarting/increasing their refinery work. Meanwhile, Marathon Petroleum MPC has announced its plan to indefinitely stop production at its Gallup and Martinez refineries in response to collapsing product demand. More recently, Royal Dutch Shell RDS.A has said that it will cease operations at its 110,000 barrel-a-day refinery in the Philippines. The sectoral woes have prompted the likes of Phillips 66, Marathon Petroleum and HollyFrontier HFC to move toward renewable diesel.

Overall, fears are mounting that oil demand recovery from the coronavirus pandemic will be sluggish in the second half of 2020. A period of sustained low usage of the fuel would create a new headwind for the commodity

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